In the small market (less than $2.5 million deals), commercial property prices rose modestly by one percent from a year ago (seven percent in 2018 Q1). REALTORS® typically transact in the small market, with the average sales at $1.2 million in 2019 Q1.[1] In the large market ($2.5 million and above deals), Real Capital Analytics reported that commercial sales price rose six percent nationally (nine percent in 2018 Q1). The National Council of Real Estate Investment Fiduciaries (NCREIF) Index and the Green Street Advisors Price Index also show a modest annual increase of two percent in 2019 Q2.

In both the large and small markets, the cap rates were slightly above six percent. Multi-family was the top-performing asset class in both the small and large market, with the lowest cap rates (which means high prices). Industrial properties were the second-best performing asset class in the large market, mainly for flex properties (essentially a combination of warehouse, office, showroom buildings). In the small market, hotels (likely Class B/C) were the next best performing asset.

According to REALTORS® who participate in the small market survey, cap rates in the small market continue to tend downward. One reason may be that demand is moving towards suburban areas where commercial properties are less expensive. According to Real Capital Analytics, commercial prices in non-metro areas rose at a faster pace in 2019 Q1 than prices in the six major metro areas of New York, Boston, Washington DC, Chicago, Los Angeles, and San Francisco: in March 2019, commercial prices were broadly up by six percent in non-major markets compared to 4.5 percent in the six major metro areas.

Leasing Activity

REALTORS® and commercial affiliate members reported a slight increase in vacancy rates in 2019 Q1 across all property types compared to the prior quarter. With vacancy rates slightly trending up, REALTORS® reported a slight decrease in leasing volume (-0.10%) and a modest increase in leasing rates (2.3%) in 2019 Q1 from the prior quarter.

Among property classes, vacancy rates were lowest in the multi-family market, at seven percent, followed by the industrial market, at eight percent. Retail and hotel properties had on average double-digit vacancy rates.

In 2019 Q1, the average tenant improvement allowances (per square foot) in the small market were $2 for multi-family units, $5 for industrial property, $17 for office, and $21 for retail.

Outlook

Multi-family and industrial will continue to be strong commercial asset classes. The multi-family market is expected to remain bright in metros with low vacancy rates and affordable rents. E-commerce will continue to sustain demand for industrial properties, particularly flex properties. Retail brick and mortar will continue to do well in growing metros and in retail niches that require face-to-face customer service. The office market will be sustained by the growth in technology-driven jobs. The Opportunity Zone tax break on capital gains is expected to bolster commercial and residential real estate sales in 2019-2020.

[1] The small market makes up a smaller fraction of deal volume but accounts for a larger share of buildings: according to Energy Information Administration 2012 Commercial Buildings Energy Consumption Survey, buildings 10,000 square feet or less in size account were 72 percent of all commercial buildings; https://www.eia.gov/consumption/commercial/data/2012/bc/cfm/b23.php

From February 2019–April 2019, 76 percent of contracts settled on time (78 percent in February 2018–April 2018).

Among sales that closed in April 2019, 74 percent had contract contingencies. The most common contingencies pertained to home inspection (54 percent), obtaining financing (43 percent), and getting an acceptable appraisal (41 percent).

REALTORS® report “low inventory” and “construction” as the major issues affecting transactions in April 2019.

About the RCI Survey

The RCI Survey gathers information from REALTORS® about local market conditions based on their client interactions and the characteristics of their most recent sales for the month.

The April 2019 survey was sent to 50,000 REALTORS® who were selected from NAR’s more than 1.3 million members through simple random sampling and to 10,000 respondents in the previous three surveys who provided their email addresses.

There were 4,611 respondents to the online survey which ran from May 1-10, 2019. The survey’s overall margin of error at the 95 percent confidence level is one percent. The margins of error for subgroups and sample proportions of below or above 50 percent are larger.

NAR weighs the responses by a factor that aligns the sample distribution of responses to the distribution of NAR membership.

The REALTORS® Confidence Index is provided by NAR solely for use as a reference. Resale of any part of this data is prohibited without NAR’s prior written consent. For questions on this report or to purchase the RCI series, please email: Data@realtors.org

[1] Thanks to Gay Cororaton, Research Economist for their data analysis and comments to the RCI Report.

[2] Respondents report on the most recent characteristics of their most recent sale for the month.

[3] An index greater than 50 means more respondents reported conditions as “strong” compared to one year ago than “weak.” An index of 50 indicates a balance of respondents

who viewed conditions as “strong” or “weak.”

[4] The difference in the sum of percentages to the total percentage of sellers who offered incentives is due to rounding.

The national median existing-home price for all housing types was $267,300 in April, up 3.6 percent from a year ago. This marks the 86th consecutive month of year-over-year gains.

Regionally, all four regions showed growth in prices from a year ago. The Midwest had largest gain of 5.5 percent followed by the South with a gain of 4.4 percent. The West had an increase of 1.3 percent followed by the Northeast with a modest incline of 0.9 from April 2018.

April’s inventory figures are up from last month 9.6 percent to 1.83 million homes for sale. Compared with April of 2018, there was a 1.7 percent increase in inventory levels. It will take 4.2 months to move the current level of inventory at the current sales pace. It takes approximately 24 days for a home to go from listing to a contract in the current housing market, up from 26 days a year ago. This would be the fastest pace since 2011 when the days on the market index began.

From March 2019, two of the four regions showed declines in sales while the Midwest was flat. The West was the only region to have an incline in sales at 1.8 percent. The South fell 0.4 percent followed by the Northeast with the biggest decline of 4.5 percent.

All four regions showed declines in sales from a year ago. The Midwest had the biggest drop in sales of 7.9 percent followed by the West with a decline of 5.9 percent. The Northeast fell 4.5 percent followed by the South with a dip of 1.7 percent. The South led all regions in percentage of national sales, accounting for 43.7 percent of the total, while the Northeast had the smallest share at 12.3 percent.

In April, single-family sales were down 1.1 percent and condominiums sales were down 5.6 to last month. Single-family home sales fell 4.0 percent and condominium sales were down 8.1 compared to a year ago. Single-family homes had an increase in price up 3.7 percent at $269,300 and condominiums rose 3.4 percent at $251,000 from April 2018.

On Thursday afternoon, the Research team presented the committee-directed redesigns and findings of several surveys and data projects to the Research Committee.. The purpose of the committee is to focus on market conditions in the real estate industry as well as developments in the general economy and to identify topics on which research and information is needed with an eye to improving the productivity and profitability of REALTOR® firms, state associations, and local boards, and how that data can be utilized. The committee is comprised of three state or board association staff, 10 residential specialists, 10 commercial specialists (including 1 auction specialist), one REALTOR® appraiser, one AEC Representative, and 15 at-large members. The Committee is Chaired by Karen Crowson and Vice-Chaired by Joanne Zettl.

Brandi Snowden, Director of Member and Consumer Survey Research, presented the findings of the 2019 Profile of Home Staging to the Committee. New this year in the report was a discussion of the impact home staging-related TV shows have on consumer staging expectations.

Amanda Riggs, Research Survey Analyst, spoke about the findings of the 2019 Profile of Real Estate Firms, newly redesigned under a directive from the Research Committee. The report includes new topic areas, such as career direction after staff leave the firm, and whether the firm utilizes virtual assistants.

Nadia Evangelou, Research Economist, and Jessica Lautz, Vice President of Demographics and Behavioral Insights, presented on a tax study and how the reduced SALT deduction will affect taxpayers by each state. For more on the reduced SALT deduction, click here >

On Thursday afternoon on May 15th, NAR Chief Economist Lawrence Yun gave a commercial update to members. In his update, Yun discussed opportunities and challenges facing the commercial market in the year ahead.

Brian Ball, Secretary of Commerce & Trade for the State of Virginia, spoke about the impacts of Amazon HQ coming to National Landing, Virginia.

*Fee varies for homes over 200K. Call for details. 6% used for comparison purposes only. Commissions may be negotiable and are not established by law. Each Office Independently Owned & Operated. The information herein is deemed to be accurate but not guaranteed. All information to be verified.